The Government is in process of reforming so called “fire and rehire” practices.
“Fire and rehire” refers to when an employer dismisses an employee and then re-employs them (or hires someone else) on a new contract, usually on less favourable terms. This approach is often used where employees do not agree to changes the employer considers necessary.
1. What is the current position?
At present, fire and rehire remains lawful if the employer can demonstrate a fair reason for dismissal and acts reasonably in the process, including carrying out meaningful consultation.
Employers can therefore still use dismissal and re-engagement to vary terms, as long as they can justify it from a business perspective and a fair procedure is followed. They should also be mindful of the Government’s Statutory Code of Practice and the ACAS guidance, the latter of which suggests that before taking any steps in this arena, employers should first contact them.
2. What is changing?
Although full details are still awaited, the Government intends to introduce reforms so that certain “restricted variations” to employment contracts will trigger automatic unfair dismissal if the employee refuses to agree to the change, or the employer seeks to employ another person on new terms to do substantially the same role.
The core set of contractual terms that will be protected include:
- Reductions in pay;
- Changes to performance-related pay measures (e.g targets);
- Changes to pensions;
- Changes to total working hours;
- Reduction to leave entitlement;
- Changes to shift patterns which are specified in regulations;
- A contractual clause that allows the employer to make the above changes without employee agreement.
A dismissal to impose any of these changes without agreement will be automatically unfair, unless the employer can show it is in severe financial difficulty and no reasonable alternative exists.
These restrictions are expected to take effect from January 2027.
The Government’s current consultation
The Government is currently consulting on how two additional categories should be treated under the new protections, which will potentially give employers at least some limited flexibility.
1. Expenses and benefits
Two options are being considered:
- Option 1: Exclude all expenses and benefits in kind from the definition of restricted variations. This would mean changes to these areas would not trigger automatic unfair dismissal (although ordinary unfair dismissal claims could still arise).
- Option 2: Exclude expenses and benefits except for certain categories such as share schemes, travel expenses and accommodation, meaning these specified benefits would still count as restricted variations.
The Government has indicated it is minded to proceed with Option 1, giving employers greater flexibility to amend expenses and benefits policies if needed.
2. Shift patterns
Similarly, the consultation proposes two approaches to shift pattern changes:
- Option 1: Treat only significant shift changes (e.g. day to night working, weekday to weekend working) as restricted variations.
- Option 2: Treat no shift pattern changes as restricted variations, meaning changes to the timing or duration of shifts would not trigger automatic unfair dismissal.
The Government is currently leaning towards Option 1, which would allow employers flexibility for most shift changes while protecting employees from extreme changes.
Consultation responses are due 1 April 2026. The proposals suggest a possible shift towards a more practical, balanced approach for both employers and employees.
3. What does this mean for employers?
The key point is, once the fire and rehire provisions come into force, dismissing an employee to impose certain contractual changes will amount to automatic unfair dismissal, unless the employer can rely on the narrow exception of severe financial difficulty.
Overall, the risk profile for contractual changes will increase significantly.
4. What are the practical steps for employers?
Employers should begin preparing now.
1. Audit your contracts
- Review flexibility clauses in contracts for new hires and existing flexibility clauses in contracts for existing employees.
- Understand what expenses and benefits clauses currently exists.
2. Plan ahead for consultation
- Allow sufficient time for meaningful consultation- planning early will be essential.
3. Workplace restructuring
- If cost saving exercises, restructuring or harmonisation of terms are anticipated, assess whether those proposals could fall within the new restricted categories once implemented.
4. Train HR and senior management
- Senior leaders may not yet appreciate the scale of change.
- Provide training on the importance of early legal input before proposing any contractual variations.
If you require advice on preparing for these changes, the employment team at B P Collins would be pleased to assist. Please email enquiries@bpcollins.co.uk or call 01753 889995.
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